Three Charts Illustrate Why Solar Has Hit a True Tipping Point

A new report from the prominent global consulting firm McKinsey shows why solar photovoltaics have hit a tipping point.

As the economics of solar PV continue to improve steadily and dramatically, McKinsey analysts conclude that the total "economic potential" of solar PV deployment could reach 600-1,000 gigawatts (1 million megawatts) by 2020.

In the year 2000, the global demand for solar PV was 170 megawatts.

That doesn't mean 1 million megawatts will get by 2020; it's just an estimate of the economic competitiveness of solar PV. When factoring in real-word limitations like the regulatory environment, availability of financing, and infrastructure capabilities, the actual yearly market will be closer to 100 gigawatts in 2020.

That could bring in more than $1 trillion in investments between 2012 to 2020.

The McKinsey report, appropriately named “Darkest Before Dawn,” highlights three crucial factors that are giving the solar industry so much momentum — even with such a violent shakeout occurring in the manufacturing sector today.

1. Because solar mostly competes with retail rates, the economic potential for the technology in high resource areas is far bigger than actual deployment figures would suggest. McKinsey predicts that the cost of installing a commercial-scale solar PV system will fall another 40 percent by 2015, growing the “unsubsidized economic potential” (i.e. the economic competitiveness without federal subsidies) of the technology to hundreds of gigawatts by 2020.

3. Solar is already competitive in a variety of markets today. As the chart below illustrates, there are at least three markets where solar PV competes widely today: Off-grid, isolated grids, and the commercial/residential sectors in high-resource areas. Of course, the competitiveness of the technology varies dramatically depending on a variety of local factors. But this comparison shows just how steadily the cross-over is approaching.

Wait, solar is actually competitive? Didn’t the death of Solyndra mean the death of the solar industry? Addressing the solar skeptics, the McKinsey analysts counter the notion that the solar sector is down for the count:

Those who believe the solar industry has run its course may be surprised. Solar companies that reduce their costs, develop value propositions to target the needs of particular segments, and strategically navigate the evolving regulatory landscape can position themselves to reap significant rewards in the coming years.

The short-term picture for solar is extraordinarily challenging, particularly for manufacturers trying to figure out how to make a profit with such a massive oversupply of panels on the market. But this is not an industry in its death throes; these are natural pains for a disruptive, fast-growing industry. The tipping point is upon us.

12 Comments

"a turnkey solution"
Installing something as large as a solar system on a roof requires sophisticated knowledge, parts and equipment. Every roof is a challenge.
We keep many different sizes of attachments in stock, tools that the ordinary handyman would not have, and lots of safety equipment. If you promote amateur installation, roofs will be damaged by improper attachment, people will get hurt, and the industry will get a bad name.

Interesting question that you raise. The answer to all three is all solar pv installations are unique so there is no one solution. The Solar City comment is the more interesting and I believe will have more impact until 2016.

Our industry is evolving rapidly and Solar City is certainly a leader. Solar City's business model is founded around investors whom are looking to buy tax credits. Solar pv installations product lots of tax credits, 30% federal, up to 35% state and up to 50% depreciation. Often times these tax credits are greater than the installation costs of the solar pv projects. Wall Street is just now realizing the genius of Solar City and SunRun and have started to pour money in to solar financing.

Solar has reached a tipping point but because any efficiency or scale but because Wall Street has realized solar is the best tax shelter out here until 2016.

Interesting that the real growth potential for PV solar is overseas in 3rd and 4th world economies, which entails additional business concerns: legal services, logistics, security, and language services.

ANONYMOUS
May 10, 2012

I find it hard to imagine total installed PV solar being cost competitive with conventional sources, except in a few limited circumstances. PV solar is much more practical than wind for residential use. But for utility scale power, wind is still far cheaper.

Frankly, the LCOE of PV solar is nowhere near the "tipping point". While it's true the LCOE of PV solar is falling rapidly, the LCOE of utility scale wind is actually dropping faster. So the true "tipping point" for PV solar keeps moving.

As for large scale investment in PV solar, that will only occur when the economics make sense long term.

Hi: There are quite a few tech breakthroughs that will occur, like room temp supers, concentrating diffuse sunlight, 70% eff "PV's"... etc, all will change the world as we know it... it is just a question of when....

Does anybody remember the computer industry? At one time, everybody and his cousin started building computers. There were literally thousands of brands and a huge number of unbranded fly by nights. When consolidation came around, most manufactures bleed to death, but the remaining ones more than picked up the slack. Each year volumes have grown and each year has been better than the last from a consumer point of view.

Think of the dot com bubble collapse. It was the companies without a solid business model that flopped, and investors suffered as ridiculous valuations became more reasonable, but the World Wide Web kept growing without a hitch.

With 20-20 hindsight, Solandra was a terrible idea. "Let's wrap photovoltaics around a tube so we can capture the sun that bounces from the roof" It makes no sense. It just had to be the first go. The bad-news-good-news is that it is the first of many, but the survivors will be the more efficient ones.

Deployment is well behind potential. Not overly surprising. Old habits die hard and incumbents always have an advantage in any election. Showing my age but my mother got her first electric cook stove only after an unfortunate incident while chopping wood.

Dining out on Solyndra and others is an unimportant side show. Did the demise of Stanley Motor Carriage or even Bricklin signal the end of the auto industry?

I can't agree entirely with point 2. Commercial R&D is generally funded as a fraction of sales potential. Advances in practical technology are an economy of scale. Cost benefit of a product goes up as a simple consequence of volume but also because the product as well as the processes to make it are improved. For PV, efficiency is the 'big knob' of margin which is the life blood of commercial enterprise. The problem with predicting technical advances is that their emergence and commercialization is unpredictable in the specific but certain in general. Over the course of time I have purchased a 128Kb floppy drive for $1400 and a 64Gb cruise drive for $42. Go figure. I don't think it would be optimistic to think that there will be at least one commercial work-around to the Shockley-Queisser limit by 2025.

Mckinsey has it right solar PV is competitive without subsidies. One the biggest challenges going forward is to get government out of the way.

The shake out in the manufactures will continue to drive down prices by rewarding those manufactures that innovate and have good business models.

Companies like SolarCity the leader in solar PV finance deliver a product the consummer wants at a affordable price.

BOS costs will go down as AHJ and NEC standardize code reguirements.

The utilities are starting to understand how to predict variable energy sources power output and how to effectively use that resource.

What Mckinsey has found is that profits not subsidies is the driving force in a sustainable renewable industry. The government has had a roll in the success of Solar PV but now needs to step back and let the free market complete the work.

The one part to the renewable industry that if solved would exponentially grow the industry is storage. The government should focus on backing open competition to find the solution.

Silicon and grid focus is understandable. Wind is the other big commercial interest.

Daylighting and Solar Thermal are small commercial interests. We're accustomed to being ignored, but we're closer to the consumer and realize that the benefit to consumers is the ultimate driver, not large commercial interests. How much "Utility" is delivered and worth paying for drives the process.

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I am a reporter with ClimateProgress.org, a blog published by the Center for American Progress. I am former editor and producer for RenewableEnergyWorld.com, where I contributed stories and hosted the Inside Renewable Energy Podcast. Keep...